Sustainability and ecommerce drive rising spend on packaging
Brands are ramping up their spend on packaging, with sustainability goals and ecommerce growth the main factors behind such accelerated spending, according to the annual Brand Owner Packaging Study by L.E.K. Consulting.
While more than half (56%) of Consumer Packaged Goods (CPG) brands say they increased their spend on packaging between 2019-2020, nearly 80% of top-tier brands did so.
And packaging spend is set to increase even more over the next two years, with 65% anticipating the growth of their packaging spend in 2022-2023 (78% of top tier brands) with one-third of these planning a 6-10% spend increase.
So, why are brands increasing their budget? The dramatic rise in ecommerce sales and accelerated push to meet sustainability goals since the onset of the pandemic are propelling companies to adapt their packaging in order to comply and compete.
Commitment to sustainability accelerates packaging spend
As is the case industry-wide, sustainability is taking centre stage, and consumer brands are under increasing pressure to change their packaging to meet both their own and industry-wide eco goals.
Increasing public pressure by consumers to swap plastic for more eco-friendly materials is pushing brands to up their packaging game and therefore their spend.
Recent research by Trivium Packaging in partnership with BCG found that public opinion has turned so far against plastic use that a majority of consumers (74%) would pay a premium to see their goods packaged in eco-friendly materials.
Perhaps under pressure to meet their targets and keep consumers buying from them, brand owners seem ready to pick up the pace, reporting plans to increase the amount of sustainable materials in their packaging by 36% (2019-2023) and to spend dramatically more on sustainable packaging by 2023.
Over the next two years, the largest number of firms will design their packaging to be recyclable and decrease the amount of material types used in packaging in order to increase their usability. While one-quarter of brands will focus on using post-consumer recycled material itself in the creation of their packaging.
A limiting factor however is access to materials. While 75% of brand owners report some access to sustainable packaging materials, the capacity of material recycling facilities is insufficient to meet the demand – suggesting future imbalances for supply. And a shortage of recyclable materials adds to supply-side pressures, especially for plastics, where only 9% of the material in use is currently recycled.
"Players in the packaging industry that are able to work with sustainable materials without sacrificing performance – or design packages that reduce weight but still provide robust product protection for ecommerce – will find themselves with a unique competitive advantage," said Thilo Henkes, L.E.K. Managing Director.
Ecommerce growth increases demand for new formats
The rise in ecommerce is further forcing brands to take action on packaging. It’s no secret that online retailing has seen a continued dramatic rise in its share of all retail shares over the past few years especially, with retail ecommerce sales in western Europe reaching a record growth of 31% in 2020, according to Forrester.
And ecommerce growth continues apace with brand owners expecting pandemic ecommerce gains to hold and brick-and-mortar shares to fall.
It’s not surprising therefore that companies are reporting a significant part of their increased spending on packaging will be allocated to ecommerce-specific formats, with 56% increasing their spend on ecommerce packaging relative to regular formats.
Over the next two years, the majority will look to ‘lightweighting’ to reduce packaging weight, while new formats and reduction in packaging size will also take up a significant chunk of spend. Other brands will look to redesign their packaging for automated environments, while those brands in the consumer electronics industry especially, will look to increase protective packaging to avoid damage in transit.
L.E.K. Consulting’s 2021 Brand Owner Packaging Study